In today’s episode, the guys reflect on the previous 12 months and take a temperature check on where we’re at in the current cycle. We also discuss the latest use case for RWA on-chain lending, with the Patek Philipe NFT loan, the recent new feature releases from Coinbase, and the potential for bipartisan crypto support on The Hill. We finish up reviewing the current seed stage climate, the death of the AI hype, and more! 
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Timestamps:
(00:00) Introduction
(01:01) SEC vs XRP Review
(09:33) Are We Experiencing a Sentiment Shift?
(12:50) RWA On-Chain Lending Use Case: Patak Philipe NFT Loan 
(18:36) Current Investment Thesis 
(20:31) Year In Review & Changing Narratives
(25:18) Coinbase News: L2 Base Launch & New Wallet-to-wallet Messaging 
(28:42) Bipartisan Crypto Support?
(31:08) Future of Token/Equity Mix
(32:01) Arkham Self-Sabotage?
(33:05) Seed Stage Climate
(34:48) Is the Pivot to AI Dead?
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Follow Michael: https://twitter.com/im_manderson
Follow Vance: https://twitter.com/pythianism

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Resources:
Coinbase: Introducing Base
https://www.coinbase.com/blog/introducing-base

Coinbase: Wallet Messaging
https://www.coinbase.com/blog/say-gm-with-messaging-on-coinbase-wallet
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Disclaimer: Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Mike, Jason, Michael, Vance and our guests may hold positions in the companies, funds, or projects discussed.

All right, everyone, welcome back to another episode of Bell Curve.

Before we jump in, quick disclaimer, the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with.

Nothing in the episode is construed or relied upon as financial, technical, tax, legal, or other advice.

Welcome back to another episode of Bell Curve.

You got myself, Vance, and Michael, number 1.

It's a quiet day in the crypto ecosystem.

Everything sounds better when the prices are higher.

I was like, man, a lot of product innovations this week.

I mean, I think this is a good example of these cases take years to play out.

It's got to be at least in the tens of millions.

I wouldn't be surprised if it was hundreds of millions that they spent on this case.

It's coming up on, it's 2 and a half years already.

You know they've had every single lawyer that they could possibly find working on this.

I think they actually also hired a bunch of people specifically for this case, or internal counsel.

I wouldn't be surprised if it's in the 9 figures.

So for anyone living under a rock who missed this, basically for the last 2 and a half, 3 years, the SEC has had a lawsuit against Ripple claiming that they issued unregistered securities, which was XRP, their token.

And today a judge, I think it was a federal judge, basically came down and said they issued their statement against this and said that There's kind of 2 buckets here.

They decided that the institutional sales and like fundraising side of what Ripple's done with XRP, some of that was securities.

However, the big news is that the programmatic sale of XRP on exchanges was not a security.

That was my takeaway in like, there's a lot more details, but is that, you guys read that the same way?

I think that's roughly the, my conclusions as well.

And just to give everyone context, this started what, with Jay Clayton leaving, This was like the last thing that he filed.

So this is something that's been going on to Michael's point for a long time.

The only other variable I'd say is they also defined that granted summary judgment to the defendants.

I think that's exactly how it goes for the executives who are selling as well.

So Chris Larson, Brad Garlinghouse seem to be fine with their transactions as well.

So to get in detail a little more, so SEC versus Ripple in brief, Ripple putting XRP on exchanges for trading and funding their operation with those sales is not an investment contract.

Ripple paying people in XRP is not an investment contract, therefore not a security.

XRP is not a security in and of itself, even when offered through a securities transaction.

The other side of this that wasn't making the big headlines was Ripple selling XRP directly pursuant to contracts was an investment contract and therefore a security.

And that's like, I think, OTC deals, direct from treasury type deals.

Yeah, those kind of like these basically institutional sales deals.

I mean, overall, there are a number of different ways that this decision could have happened.

It could have been all in favor of Ripple, it could have been all in favor of the SEC.

It seems like they've decided to split some of the decisions.

And frankly, I think a lot of this does make sense.

Just in some of the initial Twitter perspectives, this isn't necessarily a 1 and done sealed, it's all over perspective.

We would expect that there will be some appeal.

This doesn't actually clarify a lot of the different elements of what potential new regulation would clarify.

So I think this is definitely a huge victory for the crypto industry in general, but I think there's still a lot of work to be done.

So I would say the other thing, just as a point of delineation, when you're raising capital and you're selling assets, whether those are securities, commodities, property, whatever, to do so, that contract is considered to be a securities transaction.

And when US investors invest in companies, those companies have to file for what's called Form Ds with the SAC saying that they raised private capital to sell equity in their business or sell whatever in their business.

So I think that's probably the logical thread that the judge is taking here.

When you're doing direct sales, whether it be OTC or institutional or capital formation, that's where you need to actually go through a securities contract.

And that contract itself is an investment contract.

Whereas if you're selling these on an exchange, what they call the programmatic selling, where the seller doesn't know who the buyer is, and the buyer doesn't know necessarily that they're buying from Ripple Labs itself.

And the market determines the price through the order book based transaction.

That's where it seems that they've taken the stance that those are not securities transactions.

a little bit more color on the difference.

I mean, yeah, like we were talking about, it's just crazy how 1, these things, it can kind of come out of nowhere and just totally change the narrative.

And yeah, to some extent, the trajectory of the space as well.

I still, like my take on all this is, you know, there still might be appeals, like there still might be all this stuff that's going to happen, but like we just need laws for this stuff.

Like this, even this decision doesn't really make a ton of sense.

It's a monumental development, but it doesn't work as law.

you know, like we definitely want, everyone has that sense.

All the crypto lawyers are having a field day, just nerd sniping each other on Twitter.

But I think, yeah, we just need laws for this stuff.

This doesn't feel like a consistent framework that we can apply across an industry that's going to change a lot and grow.

I mean, We have the stable point bill, the market structure draft.

There's a lot of stuff that's been moving, and at least as of a couple of weeks ago, there were supposed to be some initial votes internally and discussions internally within the house.

And then also the Louis Dealer brand redraft just came out a couple days ago.

So this stuff is also happening in parallel to the discussions and negotiations and drafting of laws.

So I think if anything, that's probably the biggest takeaway is that this is just perfect timing for us to go into discussions with the lawmakers themselves.

Let's talk about why this actually matters.

So do you, I've seen a lot of tweets today that this means that all tokens are not securities.

And I think that's probably too bullish of

I mean, it does feel like though, um, there's kind of 2 types of tokens that are kind of coming into view here.

There's like app tokens and there's infrastructure tokens, at least this is how I'm kind of seeing the world.

Infrastructure tokens are, it's becoming more and more clear that they are commodities where the commodity here is basically what an L1 is doing is selling block space And we have no idea how to value this block space.

But the token here is basically represents the commodity that is the block space.

And I think a lot of these like L1, maybe L2 tokens will be seen by regulators and policymakers in years to come as a clear commodity, I think the jury's still out on some of these app tokens.

I mean, that's why you see everyone launch L2s, right?

Or like things that look like infrastructure.

They kind of create these weird perverse incentives to ship things where the market is already naturally saturated.

And so if you have a DeFi token, if you have some different type of app token, to your point, it's still pretty unclear where things lie.

I would say though that even from this decision, there's nothing that changes or that reinforces that perspective.

It's just the facts and circumstances of XRP and the transactions that the Ripple Labs team had.

Once again, It's great that this happened and this is definitely a feather in the cap of the crypto industry to move forward with more momentum, but I don't think it has anything to do with any other token.

It does, I think, help the Coinbase lawsuit, right?

Because if listing XRP on exchanges doesn't make it a security, The SEC's case against Coinbase is kind of toast here.

I feel like XRP was probably the easiest coin that the SEC could have used in the Coinbase case, but maybe I'm trying to draw

I mean, reading through the ripple case, it was about as egregious as you probably could have gotten.

And yeah, I think my internal expectation was that like, it was like probably

Yeah, definitely was not a foregone conclusion, at least for me.

Vance, you had this tweet earlier in the week.

So maybe I just let's just zoom out a little bit from from this ripple news.

You had this tweet just kind of like zooming out, talking about just bigger narratives, like where you're seeing the industry.

Can you just tell us about that tweet and what sparked that?

I think it was off for 10 days or something and was working during it, but just was looking at the things that were happening on chain, real world assets, DeFi starting to really kind of pick up and be impressive, stuff that we're seeing on the private side, prior analogies to past cycles, the timing of where the happening is, is a really big factor in each 1 of these things.

And in 2021 being 3 years away versus being, you know, less than a year away today, it's a lot different.

And so I think, you know, there's definitely a narrative that crypto is failing and that the outlook is not as optimistic, but I've tried to try that perspective on for size.

It doesn't really make as much sense if you really consider all of the evidence and facts and things that are being brought on chain.

We've talked about this a lot, but if you have $600 million of real world assets that's growing 30% per month, and there's 15 different companies that are trying to bring this stuff on chain, somebody's going to do this and it's going to work.

So yeah, I see that historically tokenization has been a big thesis as well.

And the hard part about tokenization historically is that really nothing has been worth bringing on chain.

And that was a function of rates being low.

So we were bringing on crappy Aspen condos with no 1 to buy the other side, like nothing that would really make a difference.

But now since rates are high, we have this window of the most attractive, most accessible, lowest risk financial instrument being brought on chain.

And Asia was a big place for stable coins.

I wonder if we could see something similar happening, you know, at some point.

You know, someone will figure out this regulatory structure.

And I think that would be really positive.

So I think there's a lot to be optimistic for.

And the people who I talk to are generally, you know, sidelined in 1 way or the other.

And I think that's kind of part of the other side of the story.

What is the folks are sidelined going to this bull market?

I mean, even in the traditional markets, the people that we talk to, especially East Coast folks, this was supposed to be the year of the Stanley Druckenmiller recession.

Everyone was all bulled up on, or I get bared up on that idea.

I mean, everyone was on that train and everyone, you know, in the NASDAQ just had 40 percent up for a SAP, the best I think ever.

There is really nothing like just watching something just rip in your face that you want a piece of, but also hate.

And so I think a lot of people are going through

Do you guys see the Patek Philippe NFT loan talking about bringing things on chain?

I mean, not until you mentioned that, but like this is, there is, so you send me an telegram, but this is super cool.

If people didn't see it, so basically this week a lender gave a stranger this $35, 000 loan at a 12% APR, and they used a Patek Philippe as collateral here.

And the kicker was that this was done completely on chain basically, or with an NFT that got kind of moved into DeFi land.

So the details of this is that, all right, so you have a borrower, borrower sent the watch to an escrow company, escrow company then sends the watch back or sends them back an NFT, which represents ownership of the watch.

The borrower then listed the NFT on Arcade, accepted the best loan offer, and then the NFT was then transferred to an escrow wallet until the term is up or the borrower repays in full.

And the only way to get the watch back is by burning the NFT.

So if the borrower defaults, the lender can claim the watch.

It's obviously early days and like the lender, it's cool for 2 reasons.

1 is the lender doesn't even have to know the borrower's name.

They don't have to know credit history, any of that kind of stuff.

They just have to know that they are the rightful owner of the watch, which is kind of what the escrow company and, but, and, and the NFT does here.

Um, and obviously kind of for the naysayers who might say, yeah, you can do this in traditional capital markets for anyone who's got, tried to get a loan on a weird, like a kind of an asset like a watch or a piece of art.

Like, yeah, you can, you can take a watch to a local pawn shop, but yeah,

Um, where you're getting hosed on the rates.

Um, but I mean, 12% is still pretty high, but anytime, if you look at any market in the world, like anytime you tap into global liquidity versus local liquidity, eventually you end up converging on the best rate possible.

And so the rates are going to be high in the early days.

But eventually you end up bringing these kind of like long tail of assets on chain.

I actually think seeing this, the long chain of assets coming on chain is probably what drives this market instead of bringing something like T-bills on chain.

I mean, T-bills are the biggest category.

So those are just going to be the biggest, but NFTs are going to be like if you can actually create like a digital pawn shop, that's super interesting because you know, at a shop you can sell something, but you can also just post it and borrow against it.

I guess here's why I think that the long tail will bring these folks on chain.

And then it comes from treasuries is if you look at how all these web 2 platforms develop, like YouTube and Airbnb and Uber and Spotify, they basically gain traction.

They don't start by bringing the existing supply of whatever they're selling on the marketplace on, on, on chain or onto the platform.

First, they get traction by enabling this kind of long tail of supply that wasn't ever possible and accessible with prior platforms.

So Spotify first starts with all these like indie musicians that no 1 can listen to.

Once they gain traction, then they bring the big labels on onto Spotify.

Airbnb, there was no way to access that kind of long tail of like people posting their houses.

Once that happens, now the like hotels are posting hotel rooms on Airbnb.

Etsy started with this like long tail of like weird merchants, like just little like merchants and craft people.

Now big brands are posting on their stuff on Etsy as well.

So I think YouTube as well, like bloggers, home video content, only after that was successful Did YouTube get these like sports games are streamed on YouTube and.

And so I think like when you try to tie this back into defy, it seems I'd like Rob Leshner came on the Empire podcast, love what he's doing with Superstate.

I do see that Treasuries coming on chain is a big thing, but like the typically platforms get traction and drive adoption when they allow people to access supply that is not possible to access anywhere else.

Gets traction, then the big supply comes on board.

I would say the likelihood is probably the reverse for playing out in that the access point that you don't have access to currently is frankly treasuries for stablecoin based treasuries as in like the pools of capital that all of these protocols have raised.

And I think that that's going to be the catalyst to drive adoption to tokenize other things.

And that's the enablement, that's the new technology.

Because right now, you have to send them to a custodian who mints the NFT.

You're not able to wear that Patek Philippe, or you're not able to look at that piece of artwork while you are also borrowing against it.

That ability to have utility as well as the financial services applied to that asset, I think is where you take this next.

And that's when it becomes really interesting.

Frankly, you have to have a digital asset to be able to do that.

So for instance, you have to be able to have a financial contract, security, whatever it is that is represented on chain that's in a digital ecosystem versus a physical item.

I haven't come up with a good enough solution to cross that analog digital divide.

But we talk about this a lot, whether it's real world assets, Rob Lashner calls them traditional assets.

I think the short period of time in the next couple of years while we see interest rates at 4% or 5%, that's going to drive adoption and tokenization of assets in general.

And that will drive the enablement of more financial assets that give you the higher yield, that make them more interesting, they're more bespoke.

And so, what we talk about is we think treasury yields will be the driving force here and yet the treasuries with cash sitting idle to invest in it, but then it'll be the tokenization of the long tail that drives consumer adoption, but you have to have more enabling technologies to have that long tail.

Does this like bullishness change the investment thesis at all or just business as usual?

I feel like we've just thought through like what are the credible thesis areas for crypto to manifest.

And I think there's probably 3 or 4 right now.

And a lot of this is just already assumed that stuff like this would happen or like not maybe stuff like the ripple case, but more so just courts pushing back or legislation or regulatory clarity in some way.

So yeah, we're always investing for these outcomes.

It doesn't really change anything other than the price?

I went back and looked at this recently, but I don't know if you've seen this Vance, but our pacing has been consistent every single month this year in terms of new deals that we've done.

So I think that's probably the biggest sign that things haven't really changed or slowed or sped up.

The 1 major difference to Vance's point is the price and the valuation.

Which is interesting, at least for like the base layers, because like the technology is improving meme is actually true.

Because like if you have ETH, which goes up, it's the main asset of collateral and DeFi, which then gets more credit taken out on it, which boosts NFT prices, which boosts confidence.

It is this kind of health reinforcing system.

And so yeah, it does change some things for some people.

You're probably gonna see people throw out even higher targets now.

as anybody, when people get riled up, it's like the dog chasing its own tail.

It's crazy how quickly you can see the impact of like narratives changing on actual things that like drive revenue for companies inside of crypto.

So like for us, like 1 of the ways we make money is permissionless and we're having 1 of the biggest ticket sale days that we've ever had from Permissionless.

And I think in the last 7 days, it was the biggest Permissionless sales ticket week that we've had since we launched Permissionless.

So it's like, it has very quick, which then gives us more money, which then we can hire more people, which then brings more people into the industry.

Tyler Litchenberger I've, I've, I've found people's maximum, you know, narrative cognition level is about a month.

Like a month ago, people probably can't remember what exactly the narrative was.

Yeah, I actually have been doing this thing since COVID, where at the end of every day I just write.

It actually started during COVID to just get thoughts out of my head when like my mind was just racing.

Just like end of every day, just like brain dump thoughts onto a piece of paper into just like a notion doc and then just let it sit.

And now I'm like, okay, now I'm done with the day.

And it's really interesting looking back at these things.

So I've been doing it every day for 3 and a half, 3 years now.

And it's like usually 1 sentence, like today suck, This happened.

They're like Ripple K's bullish, fun day or something.

Yeah, even like a month ago, it was like, damn, like things are a grind.

Like just kind of like bearish sentiment, you know?

I mean, people can't remember how max bearish it was near the bottom.

They can't remember what the sentiment was a month ago.

They don't remember last cycle, what happened.

There is this thing, I forget, it's 1 of Edward Chancellor's books, the guy who wrote Devil Take the Hindmost, but he's like, history is usually a guiding post for every single discipline except for finance.

Finance is like, you have a year of memory total, which is which is interesting.

Do you know what happened exactly a year ago Celsius to put up bankruptcy?

the terror blowing up too, probably a month after, no longer, say 2022.

And then you had June 13th-ish as when everybody was just market selling all the different assets.

And that month up until July 13th, and today is July 13th, that was the extent of the like max bearish, max pain.

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